Tips on Using Kredittkort Wisely
Money is the need of every person. Without it, it would not be possible to enjoy all modern age amenities. You earn it and spend it – that’s a cash flow that should be smooth and not a burden to your budget. Visit this web source for more information on the importance of good spending habits.
And while cash is irreplaceable in many cases, more and more consumers trust and use credit cards. It’s a simple piece of plastic that allows you to make online and offline purchases without having to pay cash. This financial tool is extremely convenient and can help you build a good credit history – as long as you use it responsibly.
How Credit Cards Work
The cards are consumer loans, as the issuer effectively lends you the money for your needs. It’s a digital transaction, so you don’t actually have that money. When the time comes, you repay the lent amount by paying interest on the borrowed amount and other miscellaneous fees. By doing this regularly, you’ll steer clear of debt.
Credit card interest rates are calculated using the prime rate and are subject to change. So, issuers must disclose possible interest rates, fees, and charges as part of the application process. These terms must be clearly stated in your agreement, so read the contract carefully and don’t skip small print.
There are different requirements for different types of credit cards. But in most cases, lenders will ask for your personal information, identity documents, and proof of employment. Also, they’ll probably ask for a social security number and individual taxpayer identification number.
In order to check your eligibility, lenders will also require information on your income and current debts, including if you own a home and how much debt you pay each month. All that will help them determine your affordability and eligibility for this financial tool.
Most card issuers will accept applications either online or over the phone. However, when applying in person, the time for approval varies from bank to bank. It usually takes a couple of days to get an answer. But you have the chance to ask questions about this financial tool in person.
Online applications are faster and more straightforward, and you can get approval (or denial) on the same day. Lenders usually have handy tools like loan calculators on their websites, so you can benefit from these, too.
Who Can Apply?
Before applying for a credit card, it is important to check your credit score and make sure you meet the issuer’s requirements. In general, you must be at least 18 years old, earn a steady income, and have assets and proof of residence. If you have income outside your full-time job, you should include it on your application.
Card issuers may have their standards for approval. They don’t disclose their exact criteria, but it’s known that they consider your creditworthiness and debt-to-income ratio. Ideally, the latter should be less than 40%. You will most likely be denied if your current dues are more than 50% of your income.
Whether a credit card is right depends on your financial situation and if you can make balance payments. Once you get this mighty piece of plastic, you should take certain actions to steer clear of debts.
Read The Card Agreement Carefully
Your first decision is to select a card that fits your spending habits and financial goals. Then, you should read the agreement carefully before signing it. It’s crucial to understand all things stated there before making any purchases. That will help you avoid unexpected fees and keep track of payments.
Credit cards have different terms and conditions, and you can check them before signing anything. Never skip the small print, as the devil is usually in details. For example, there may be an explanation of penalties, fees, late interest, etc.
Make Payments on Time
There’s no free money. When lenders give you any type of loan, they expect you to pay it back on time and not default on it. If that does happen, the lenders will find a way to collect their claims. But the consequences for you can be quite harsh.
If you use a credit card to make purchases, try to pay it off each month. Missing a payment will result in penalties and late fees, hurting your credit score. Eventually, it can lead to overindebtedness and bankruptcy.
Try to pay off your balance as soon as you can each month to avoid interest charges. You can also avoid missed payments by setting reminders or using automatic payment options. It would probably be best to keep this debt low so you can settle it without problems.
For more tips on avoiding overindebtedness see below:
Keep Card Utilization Rate Low
When you apply for a credit card, the lender determines the limit based on your requirements and financial capabilities. It is the amount you can spend during one billing period, but you don’t have to. Most financial experts recommend keeping your total utilization rate to less than 30%.
Card utilization is calculated by dividing your total balance by your credit limit. This number is then multiplied by 100 to get a percentage. A utilization rate of 36% is not terrible or great. But the best way to protect your credit score is to keep this parameter as low as possible. The lower the percentage, the better, as it will reflect positively on your credit score.
Pay More than Minimal Balance
Credit card debt can be expensive, and minimum payments will help you avoid the high-interest charges that come with high balances. To calculate it, you should know what you owe each month. You can use minimum payment calculators on the issuers’ websites to see how much you can afford to pay each month.
But making only minimum payments won’t help you get out of debt. First, it only covers a small percentage of the principal balance. So if you adhere to this strategy, you’ll need more time to repay your debts. Plus, the interest charges will be higher than you originally borrowed.
Paying more than the minimum balance on your credit card can help you pay off the balance faster. This method reduces the amount of credit you use and leaves more available for emergencies. Besides, paying more than the minimum balance allows you to pay off the balance faster.
If you are concerned about your financial situation, you can try making extra payments to avoid any further interest charges. Doing that several times during the billing cycle will keep you on top of your finances. Even a few dollars extra every month can help you settle your card debts faster. But you really shouldn’t spend more than you have to.
Avoid Multiple Lines of Credit
A credit card is good for consumers who currently don’t have enough money for purchases, as it allows them to delay payment. But this piece of plastic works just fine for those who have enough cash but don’t want to spend it. Instead, they save money for real emergencies and use a credit card for daily or specific needs.
People who rely too much on credit cards may have several accounts. Banks know that, so they offer attractive terms and perks to new card users. People with solid finances probably can afford that. Still, opening several lines of credit is not always a good idea.
Too many credit lines at once could be hard inquiries on your credit score. Besides lowering this parameter, multiple card and loan applications will make you look desperate to lenders. So, if you apply for a loan, they’ll probably reject you because of your multiple cards.
Having several credit cards you use creates more room for making more debts. Also, managing several installments every month makes it difficult to manage. You can easily lose track of your spending and pay dates. That puts you at a high risk of loan default.
Keep an Eye on Your Credit
It’s essential to monitor your credit card use to avoid late payments and other costly consequences. Never use more than you can afford and pay off your balance in full each month. That will protect your credit rating and help prevent you from accruing debts.
But you must also keep an eye on your credit report. You should do that every couple of months to stay up-to-date with your finances. Also, it allows you to track overspending and spot prospective errors and abuse. All these can harm your credit, so detecting them on time can prevent more significant damage.
Checking your report is possible through credit bureaus – Equifax®, Experian®, and TransUnion. You can get a free copy without having a hard inquiry. However, when you spot errors or outdated information, you should work on solving them.
Double Check Monthly Statements
When using credit cards, you get monthly statements showing your balance and cash flow if you ask for them. These reports list all purchases you’ve made during a billing period, including the amount, date, and retailer. Some issuers also list the type and location of the retailer, which can make it easier for you to verify your transactions.
It’s of great importance to check your monthly statements for accuracy. Yet, many people don’t bother with that; instead, they simply look at the charges and minimum amount due. That can be a costly mistake, as any unauthorized transaction or data abuse can get you in trouble.
Monthly statements from different issuers may look different, but the basic information is the same. Make sure that your name, mailing address, and account number are correct. Also, by double-checking your transactions, you can avoid making costly mistakes. So take your time to review any unexplained purchases, which may be an indication of unauthorized charges.
Report Card Abuse
If your card is lost or stolen, or you think someone has hacked it, say for example, rent a car and even got rabatt på leiebil, that’s an abuse that can harm your finances. So don’t hesitate to report missed or stolen credit cards or purchases you didn’t make. When you do, your card issuer will deactivate your account so no one else can use it.
Being a responsible consumer will keep you out of overindebtedness. But choosing a proper issuer can be of great help, too. For example, some of them offer $0 fraud liability. Simply put, you won’t be charged for unauthorized transactions when your card is abused, lost, or stolen. But you have to report these situations as soon as possible.
The ease of using a credit card can fool many. However, just because you can spend the money you don’t have right now doesn’t mean you should do it at all costs. Responsible behavior will keep you away from financial troubles.